I’ve never been big on celebrating the New Year. When I was in high school and for much of my early 20’s, I worked for a party decorating company and I spent late December tying tens of thousands of balloons. Maybe hundreds of thousands. On New Year’s Eve, as midnight approached and champagne flowed, I was the one pulling the rope that made those balloons drop on the partiers. When the party was over, I cleaned it up. My fingers were bloody and callused, and I spent every New Year’s Day catching up on the sleep I’d missed over the last few weeks. Being the one who made the party happen really turned me off from wanting to join in the celebration, even after I wasn’t tying balloons for days. So I just never got into New Year’s resolutions.
This year, however, is different, for obvious reasons. We’ve all been counting down to 2021, thinking – hoping – it can only be better than 2020. And with my newfound joy for celebrating this New Year, I’ve decided to make my goal for 2021 to help other tax professionals (and taxpayers who are representing themselves) to avoid some common mistakes when dealing with IRS disputes. This is the first of a series of columns to help everyone dealing with the IRS resolve: Leave the bad habits in 2020.
This year, let’s celebrate leaving bad habits for tax professionals behind. (Photo by Matt … [+]
The Washington Post via Getty Images
Resolution Number One: Get Rid of the Circular 230 Disclaimer
Circular 230 provides best practices and the standard of care for tax professionals in general, including tax attorneys, accountants, enrolled agents, enrolled actuaries, enrolled retirement plan agents, and registered tax return preparers. It contains the highly particularized, affirmative, and disciplinary rules prescribed by the Treasury Regulations governing federal tax practice, which appear in the Code of Federal Regulations and in pamphlet form as Treasury Department Circular No. 230. Tax practitioners simply refer to the rules contained within it as “Circular 230.” It is the only document that governs practice before the IRS, and is largely based on the American Bar Association’s Model Rules of Professional Conduct.
Every tax practitioner should be intimately familiar with the rules in Circular 230, but they are not. If you are a tax professional and you haven’t read it, stop right now and do it. I’ll wait.
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It is no secret that Circular 230 needs to be amended. It was last revised on June 12, 2014. I don’t even need to look up the date – I remember it well. That’s my birthday and also the day I had twins, two months early. But I digress…Since Circular 230 was last revised in 2014 several court cases have rendered parts of it moot. Sharyn Fisk, the Director of the Internal Revenue Service’s Office of Professional Responsibility, has repeatedly acknowledged that OPR is working to revise Circular 230 to comply with current law, and she is seeking input on that score. (You can read recent comments Fisk made on that in Tax Notes here, behind a paywall).
While it is true that certain parts of Circular 230 need to be revised, when the document was revised in 2014 it removed the so-called “covered opinion” rules. The “covered opinion” rules are to blame for every lawyer, CPA, and enrolled agent in America wasting hundreds of thousands of pieces of paper including a disclaimer at the bottom of every email, saying something along the lines of “pursuant to Circular 230, you can’t use this email to avoid penalties.” The whole idea is absurd – of course clients wanted to rely and did rely on what their lawyers, CPAs, and enrolled agents, and certainly relied on what they were told in emails to inform whether or not they could do whatever they were asking about. Professionals cannot abdicate responsibility for what we say to our clients by putting a disclaimer at the bottom of an email.
For that reason, the “Covered opinion” rules, which used to span several pages of the pre-2014 version of Circular 230 were removed, and in 2014 were replaced with a much simplier, principals-based approach. The rule now provides that for practitioners to render written advice on any federal tax matter, the tax professional must base the advice on reasonable factual and legal assumptions. There’s a lot more there (again, I encourage you to read it all, above), but the general idea is that practitioners must be reasonable and – most importantly – can’t pretend like they didn’t give the advice that they very clearly gave by including a disclaimer at the bottom of an email.
On June 18, 2014, then-Director of the IRS Office of Professional Responsibility Karen Hawkins said this about including the disclaimer in emails, “My only concern and my message is, if a disclaimer says ‘The Internal Revenue Service says’ or ‘I am required under Circular 230,’ I can promise you that you will get a letter from my office asking you to cease and desist using that kind of language because I don’t want taxpayers to be misinformed.” Hawkins continued, “We do not require that language after last week.” (Hawkins was quoted in Tax Notes, in an article by William Davis titled OPR Will Tell Practitioners To Remove Circular 230 Disclaimers).
As recently as last month, I received an email from a colleague with this at the bottom:
GMM
It has been over six years since Circular 230 was amended and the disclaimer was required to be removed from client communication. For those of you tax pros who still have that disclaimer at the bottom of your email, it is way past time to take it off.
And if you are a taxpayer reading this message and your tax pro has this disclaimer or one like it at the bottom of their email, you may want to ask them to read up on Circular 230, or find a different tax professional.